POST-CPI FX Flows
With recent Fed commentary more hawkish, expectations have been building for stronger hints on Fed tapering to be laid out at the upcoming Jackson Hole symposium. Ahead of yesterday's US CPI data, mostly macro names were long USD, while there were some early signs of a shift in real money flow. USD topside vs EUR and CHF 1-2m were the standouts.
After the data the desk saw a wave of USD selling: small clips vs EUR, higher beta G10, and some EM. Vols also sold off; EURUSD lm from 5.6 vol to 5.0, and USDCHF 1m from 6.0 to 5.6. The largest event weight for Jackson Hole we have marked is EURUSD on Aug. 30, and that has sold off from 1.8 to 1.6 vol. Demand for USD calls, meanwhile, has slowed markedly.
The trading desk prefers to look for better levels to enter USD longs vs G10 FX: buying USDCHF at 0.9180/90, and selling EURUSD at 1.1770/80.
FX Flows Remain Light
An early rally in the USD saw dollars sold early on Wednesday across G10 and EM pairs, with real money the main drivers, before the USD quickly regained losses. Most notable has been EUR, AUD and CAD buying against the USD, but flows remain light and the desk's volumes are 25% below the five day average.
Despite the rally in EURUSD post-US CPI and real money net EUR buying of Thursday morning, the desk continues to see an abundance of front end downside requests in vol space as spot fails to break above the prior resistance level of 1.1750. Markets have been quick to price vol lower and the team have seen some interest to now pick up key dates such as the next FOMC and German elections.
Despite the news on Wednesday that Poland has pushed through the controversial law on foreign media ownership, the desk has seen better buyers of USDPLN today, whilst ZAR remains the most notable flow in CEEMEA with macro name buyers throughout the morning. TRY is trading firmly ahead of the CBT on Thursday, the desk expects no cut and a neutral statement but has little participation on the move.
Profit Taking In AUDUSD, NZDUSD ahead of RBNZ
FX has been trading in fairly tight ranges after a solid US CPI print on Wednesday, slightly missing the mark and disappointing high expectations. USD sold off, but not too much. Positioning still feels long USD, but at levels that don't cause a stir on every dip. AUD and NZD are holding in well, despite fresh selling in both (real money names in NZD, real money and hedge fund names in AUD). The RBNZ policy meeting on Tuesday is the next key event to focus on and ahead of that there will likely be some more profit-taking, especially in NZDUSD, which should provide decent support for AUDNZD for now.
The desk still likes long AUDNZD but the stop isn't too far away, so being tactical is key. AUDCHF has come a long way and it's god to book some profit alongside renewed AUD-cross selling interest across the board. USD moves will dominate this week, which argues for reducing some risk to be able to participate if needed.
Commenti